Special Considerations for Trading During the Last 2-Weeks of the Year
Every experienced trader is aware that market behavior changes during the Holiday Season.
It makes sense to adapt your trading to “Holiday market conditions”
In other words, you have to manage expectations based on how the market itself is behaving. This is particularly relevant during the “Holiday Season” which comprises the last 2-weeks of the year.
Last year (2021) on 12/30 and 12/31 the market was open and the Momentum System was online. Guess what? Even though the system was online, NO ALERTS TRIGGERED IN those two sessions. That’s rare and is exactly what I’m talking about here. The days prior to that the market was all over the map and volume was low and quite frankly it was not a good time to be trading.
In the last 2-weeks of the year in 2021, the ES Momentum System gave 12 alerts (that triggered-in) and the net result trading all 12 of those alerts totaled -1.5 points. You’d have been much better off taking time to enjoy the Holidays – relax – spend time with family – do things that you enjoy – and then come back refreshed and ready to hit the ground running in the New Year.
Last year we considered that it might be a good idea to just shut the system off for the last two weeks of the year going forward. But since we’ve never done that before we’re going to leave it running this year just to see how the Momentum System deals with the “price action” the market serves up.
Keep in mind that the Momentum System is a “mechanical algo” that’s just numbers and logic and doesn’t know how to celebrate the Holidays.
While it is indeed programmed to adapt to current and varying market conditions – to a certain degree – any purely mechanical “system” has certain limitations when it comes to compensating for market conditions during “the holidays”.
As you probably know if you’ve been doing this a while, the less volume and participation in the market, the less “flow” there is to the price action. And this manifests in erratic, choppy and seemingly random moves.
The more participation and liquidity, the better the market environment.
Needless to say right around Christmas and New Year (the last two weeks of the year) is typically some of the lowest volume and “participation” of the year. The Ranges tend to be small and the market can chop around in a very tight range – and behave like it’s “moving in slow-motion”.
The less participation and volume there is in the market, the less likely it is that a trend will develop.
Sometimes the market is “practically untradeable”.
That’s just a fact of life that goes along with trading. Have you ever seen the ES moving like it’s in slow-motion and just bouncing around in a 3-4 point range for hours? A lot of times you’ll see this type of price action in the Globex session when the volume is low and there’s just nothing going on. Well this type of price action also occurs frequently around the Holidays – which of course makes sense. People are doing other things – and institutions are “off the desk”.
The trick is determining when to just avoid trading altogether because the price action is just not conducive to trading at that time. Just because the market is open doesn’t mean it’s a good environment to trade – and this is especially relevant around the Holidays. There might be a few days where the market “does something” and there will likely be sessions where it does nothing (worthwhile).
The week between Christmas and New Year is probably the worst time of the year to trade – Don’t expect much from the market.
As traders we know that we have no control over how the market “acts” but we do have control over when we choose to trade. No matter what system or strategy you use, there are just certain times where the market isn’t worth bothering with. This doesn’t mean that you might not be able to score some points here and there in these type of conditions – but the idea I’m trying to get across here is to keep your expectations low – and realize that it’s ok to just avoid trading when it’s clear the market is going nowhere and all the “big players” are not at their desks.
Sometimes the low volume and participation can make for exaggerated intraday moves that happen all of a sudden, and then the market does nothing subsequently. Over the Summer we see this type of action frequently around lunch time when it seems like the price just slows down to a crawl.
Here are some ideas you might consider to adjust to “dull market conditions” when trading around the end of year Holidays.
1) Trade smaller positions.
Maybe go for the first Alert of the day with just 1 Micro contract. Then use some discretion based on the price action you see unfolding to decide if you want to take any subsequent Alerts. You might choose to just call it a day, or take another Alert with the standard 2 Contracts. The idea here is to not try to force things or trade aggressively if market conditions are simply not favorable.
2) Consider just shooting for Target 1.
During the Holidays since the price action tends to be “dull” there’s less chance the price is going to make a BIG move – which is typically required for Target 2 to get hit. So just shooting for T1 gives us much better odds and a higher frequency hit rate during dull market conditions.
3) Gauge market conditions based on what you see – and skip some Alerts if the action seems too dull.
Skipping the very first alert of the day – especially if it occurs in the first 15-minutes of the session – gives you time to get a better feel for how the price action is developing.
NOTE: The Momentum System is designed so that if price breaks out of the range early-on, it may give an alert within 7-10 minutes the cash open. This is so it doesn’t “miss a move” where the price just trends in that direction all session. However this is a double-edged sword because it’s not uncommon for the price to make a “false move” in one direction in the first 15 minutes of trading. Then it reverses and the primary trend of the day is in the opposite direction. This actually happens frequently. When you see an alert within the first 15-minutes of trading we call that an “Opening Drive Alert” and these tend to have a higher frequency of hitting the Full Stop.
The issue with avoiding the “opening drive” Alert is that some times it is THE directional move that goes on to hit both Targets and if you skip it, then you’ve missed out for the day (since the system will go offline once both targets get hit and the trailing stop converges with price).
But, since the opening drive alert tends to hit the stop with a higher frequency, “Holiday Trading” might be a good time to avoid any Alerts that fire off in the first 10-20 minutes of the session. Worst thing that can happen is you miss a trade that hit the Targets. But maybe you see that there’s some action and a trend developing and you get a 2nd Alert that seems worth taking.
4) If the Trigger Range is “way too tight” avoid trading that session.
Generally speaking, the “average” Dynamic Trigger Range over the course of a year would be somewhere between 8-18 points depending on the volatility in the market. But during the Holidays it’s possible to see something like a 3-5 point range on any given session. We recommend avoiding trading the Momentum System that session if you see a tiny Range like that. A Range that small means the odds are greater that the price is going to explore both sides of the range multiple times – which means stops are more likely to get hit.
Note that the Momentum System stays offline on “half-day trading sessions” where the stock market closes early.
The main takeaway here is to realize that trading during the last two weeks of the year may or may not even be worthwhile. This year (2022) the week of December 19th is the week ahead of Christmas and that’s when I expect things to really start to slow down. Christmas is on a Sunday and the following week is likely to be really dull leading up to New Year’s. So the last 2-weeks of this year is probably the best time to “take a break” from trading – or at least keep your expectations low for what the market will serve-up. It’s like trying to play golf in the rain – you know you’re not going to have your best game in those conditions.
I hope you have a great Holiday Season and want to say that we sincerely appreciate your support as a Power Emini user. As most of you know, if there’s ever anything we can do to help you out, just shoot us an email. We’re always here to answer questions or provide assistance in any way we can.